Published
# D.R. Horton, Inc. (DHI): Business, Risks and Management Discussion
D.R. Horton's fiscal year ends September 30. This narrative covers the third quarter of fiscal 2026 (the three months ended June 30, 2026). The business description, risk factors and full-year discussion come from the Form 10-K for fiscal 2025 (accession 0000882184-25-000081). The current-quarter discussion comes from the Form 10-Q for the quarter ended June 30, 2026 (accession 0000882184-26-000096) and the third-quarter earnings release furnished on Form 8-K on July 21, 2026 (accession 0000882184-26-000092).
## Business
*Source: Form 10-K for fiscal 2025, accession 0000882184-25-000081; segment footprint updated from the Form 10-Q, accession 0000882184-26-000096.*
D.R. Horton builds and sells new single-family homes across the United States. By number of homes closed it is the largest homebuilder in the country, a position it has held every year since 2002. It operates in 126 markets across 36 states. Most of its revenue comes from closing sales of completed homes to individual buyers. Homebuilding produced 92% of consolidated revenues of $34.3 billion in fiscal 2025. About 84% of home sales revenue came from detached single-family homes, and the rest from attached product such as townhomes and duplexes. The company builds entry-level, move-up, active-adult and luxury homes. Homes generally range from 1,000 to 4,000 square feet. By the third quarter of fiscal 2026 the company described its price range as $200,000 to more than $1,000,000. In fiscal 2025 it closed 84,863 homes at an average price of $370,400.
Around that core it runs four related businesses:
- **Homebuilding** is managed through 92 decentralized operating divisions, grouped into six reporting regions: Northwest, Southwest, South Central, Southeast, East and North. South Central covers Texas, Oklahoma and Arkansas. It is the largest region by volume, with 6,660 of the 23,983 homes closed in the June 2026 quarter. Subcontractors do nearly all land development and construction work. Most homes were completed in two to four months in fiscal 2025.
- **Rental** builds single-family build-to-rent communities and garden-style apartment communities in high-growth suburban markets, and sells them in bulk to investors. In fiscal 2025 it sold 3,460 single-family rental homes and 2,947 multi-family units, for revenues of $1.6 billion.
- **Forestar Group** (NYSE: FOR) is a publicly traded residential lot developer that is 62% owned and consolidated. It operated in 65 markets across 24 states at June 30, 2026. In fiscal 2025 Forestar sold 14,240 lots, 83% of them to D.R. Horton, under a master supply agreement. The company describes Forestar as a key part of its strategy to keep relationships with land developers and to control much of its land and lot position through purchase contracts.
- **Financial services** consists of DHI Mortgage and title agencies. DHI Mortgage financed 81% of the company's home closings in fiscal 2025 and originated or brokered 68,982 loans. It sells substantially all of its loans and servicing rights after origination, mostly into Fannie Mae, Freddie Mac and Ginnie Mae channels.
- **Other** activities include insurance-related operations, water rights and ranch land. These are not material.
**How the model works.** The company tries to control most of its land through option contracts rather than own it. At June 30, 2026, 78% of the 568,500 lots it owned or controlled were held through purchase contracts. Those contracts had a remaining purchase price of $27.5 billion, secured by $2.5 billion of earnest money deposits. In the first nine months of fiscal 2026, 67% of homes closed were on lots developed by Forestar or third parties. The company also builds homes before they are sold ("spec" homes) to capture demand. It uses incentives, especially mortgage-rate buydowns, to keep homes affordable. Its stated long-term aim is a debt-to-total-capital ratio of about 20%.
**Seasonality.** The company normally closes more homes and earns more in its fiscal third and fourth quarters (April to September).
At September 30, 2025 the company had 14,341 employees, 9,972 of them in homebuilding. The executive team's average tenure was 28 years.
## Risk factors
*Source: Form 10-K for fiscal 2025, Item 1A, accession 0000882184-25-000081. The June 2026 Form 10-Q does not update them. Current figures noted are from that 10-Q, accession 0000882184-26-000096.*
The risks that matter most for this business:
- **Housing cyclicality and mortgage rates.** Demand depends on employment, consumer confidence, interest rates and the supply of existing homes. The company says higher mortgage rates have reduced affordability and forced it to use price cuts and incentives, which lower gross margins. Prolonged high rates, or further increases, would hurt results. The cancellation rate was 20% in the June 2026 quarter, against 17% a year earlier.
- **Dependence on government mortgage channels.** Buyers rely heavily on FHA, VA and USDA programs. DHI Mortgage needs the agencies and a small number of buyers to take its loans. In the first nine months of fiscal 2026, 74% of loans sold went directly to Fannie Mae or Freddie Mac or into Ginnie Mae securities, and 18% went to a single other financial institution. Any change to the structure of Fannie Mae or Freddie Mac, or to FHA pricing, could affect both demand and the mortgage segment.
- **Land, lot and rental inventory.** If demand weakens, the company may be unable to sell homes or rental properties at a profit. It could then record impairments, or walk away from option contracts and forfeit deposits. Earnest money and pre-acquisition cost write-offs on terminated contracts were $114.3 million in fiscal 2025, up from $54.9 million.
- **Inflation, tariffs and supply.** Land, lumber, drywall, cement and labor costs, and delays in municipal approvals, can raise costs and lengthen construction cycles. The 10-K specifically names newly imposed tariffs on imported steel, aluminum and lumber as a cost risk.
- **Construction defect and warranty liabilities.** Since June 1, 2021 the company has been almost exclusively self-insured for construction defect exposure, apart from contractual risk transfer. Reserves for legal claims were $1.1 billion at June 30, 2026, and about 99% of them related to construction defects. In many states, defects can be reported for up to ten years after a home closes. The 10-K estimates that a 10% rise in claim frequency and average cost per claim would add about $155.1 million of net expense.
- **Funding and covenants.** The homebuilding, rental, Forestar and mortgage businesses each have their own credit facilities and covenants, and the facilities do not cross-guarantee each other. DHI Mortgage depends on renewing its committed repurchase facility. That facility was extended in May 2026 to May 4, 2029. Performance bonds are another dependency: $3.4 billion of surety bonds were outstanding at June 30, 2026, and losing access to them would constrain development.
- **Weather and climate.** Large operations in Texas, Florida, California and other coastal areas are exposed to hurricanes, wildfires and floods. Rising homeowner and flood insurance costs and climate-related building rules also raise the cost of owning a home.
- **Cost of homeownership and tax policy.** Changes to federal deductions for mortgage interest and property taxes, or higher local property taxes, could reduce demand.
- **Cybersecurity and privacy.** The company holds personal data on buyers, renters and employees. A breach could bring litigation, fines and reputational harm. The company also cites AI-enabled phishing as a growing threat.
- **Regulation.** Zoning, environmental and stormwater rules, growth-control measures and climate-disclosure laws apply to the homebuilding business, and the CFPB, HUD, FHFA and the agencies oversee the mortgage business. Two stormwater matters have produced penalties: an EPA Region 4 consent decree and a Maryland action settled in May 2026.
- **Controlling-shareholder conflicts at Forestar.** In April 2025 a Forestar stockholder filed a derivative suit in the Delaware Court of Chancery (*Mississippi Public Employees' Retirement System v. D.R. Horton, Inc.*). It alleges breaches of fiduciary duty in lot-sale transactions between Forestar and D.R. Horton. The company disputes the claims and does not expect a material adverse effect.
- **Activist stockholders, reputation and key personnel.** The 10-K also cites the risk that activist campaigns could disrupt strategy and divert management attention. It also cites reputational damage from negative publicity, and dependence on long-tenured division and region presidents.
## Management's discussion: fiscal 2025
*Source: Form 10-K for fiscal 2025, Item 7, accession 0000882184-25-000081.*
Fiscal 2025 was a year of weaker affordability and heavier incentives. Consolidated revenues fell 7% to $34.3 billion. Homes closed fell 5% to 84,863, and the average closing price fell 2% to $370,400. Pre-tax income fell 25% to $4.7 billion, and the pre-tax margin narrowed from 17.1% to 13.8%. Net income attributable to D.R. Horton was $3.6 billion ($11.57 per diluted share), against $4.8 billion ($14.34). Return on equity fell to 14.6% from 19.9%.
**Margins.** Home sales gross margin fell 200 basis points to 21.5%. Management broke the decline down as follows: 170 basis points from higher average cost per home combined with a lower average selling price, 20 basis points from higher warranty and construction defect costs, and 10 basis points from more capitalized interest amortization. Management said it raised incentives, mainly mortgage-rate buydowns, to support demand. It expected incentives to stay elevated through fiscal 2026. Homebuilding SG&A rose to 8.3% of homebuilding revenues from 7.5%, mainly because revenues fell.
**Orders and regions.** Net sales orders fell 4% to 83,423 homes ($30.8 billion). Year-end backlog fell 14% in value to $4.1 billion (10,785 homes), with cancellations at 18% of gross orders. Revenue declines were concentrated in the Southeast, down 21% and led by Florida (particularly Tampa and Jacksonville). They also hit the Dallas and Fort Worth markets in the South Central region, Phoenix and California in the Southwest, and Salt Lake City in the Northwest. The North region grew revenues 15%, driven by Chicago, suburban Washington, D.C. and New Jersey. The East region grew 1%, led by North Carolina.
**Other segments.** Rental pre-tax income fell to $170.0 million from $228.7 million. Fewer single-family rental homes were sold, at lower average prices, and margins were thinner on both single-family and multi-family closings. Forestar's revenues rose 10% to $1.7 billion, but its pre-tax income fell to $219.3 million from $270.1 million on lower lot margins and higher SG&A. Financial services pre-tax income was $278.7 million, against $311.2 million.
**Cash and capital returns.** Operating cash flow rose to $3.4 billion from $2.2 billion, helped by $1.2 billion of cash released from lower construction-in-progress and finished-home inventory. The company repurchased 30.7 million shares for $4.3 billion and paid $494.8 million of dividends. In April 2025 the Board authorized a new $5.0 billion repurchase program. The company issued $700 million of 5.5% senior notes due 2035 and $500 million of 4.85% notes due 2030. It repaid or redeemed $1.0 billion of older homebuilding notes. Forestar issued $500 million of 6.5% notes due 2033. Debt to total capital ended the year at 19.8%, and net debt to total capital at 11.0%. Book value per share rose to $82.15.
**Tax.** The July 2025 federal tax law (the "One Big Beautiful Bill Act") ends the energy-efficient home tax credit for homes closing after June 30, 2026. Management said this reduces the company's tax benefit beginning in fiscal 2026. The credit was worth $39.5 million in fiscal 2025 and $70.4 million in fiscal 2024. The fiscal 2025 effective tax rate was 23.6%.
## Current quarter: fiscal 2026 third quarter (three months ended June 30, 2026)
*Source: Form 10-Q for the quarter ended June 30, 2026, accession 0000882184-26-000096; guidance and cancellation rates from the earnings release furnished on Form 8-K, accession 0000882184-26-000092; the earlier April 2026 guidance from the earnings release furnished on Form 8-K, accession 0000882184-26-000062.*
**Volumes held up, but margins kept compressing.** Consolidated revenues were essentially flat at $9.2 billion. Homes closed rose 4% to 23,983, which the company said was at the high end of its guidance range. The average closing price fell 2% to $362,000. Home sales revenue rose 1% to $8.7 billion. Pre-tax income fell 10% to $1.2 billion, and the pre-tax margin narrowed to 13.3% from 14.7%. Net income attributable to D.R. Horton fell 12% to $904.9 million. Diluted EPS fell 5% to $3.20. EPS fell less than net income because the diluted share count dropped to 283.0 million from 304.9 million.
**Gross margin.** Home sales gross margin was 20.7%, against 21.8% a year earlier. Management attributed the decline as follows: 110 basis points from higher average cost per home combined with a lower average selling price, and 10 basis points from more capitalized interest amortization. Lower warranty and construction defect costs offset 10 basis points. The 10-Q said the lower average sales price and higher incentives, including rate buydowns, drove the decline. Management expects incentives "to remain elevated during the remainder of fiscal 2026 and into fiscal 2027". Homebuilding SG&A rose to 8.3% of homebuilding revenues from 7.8%. Homebuilding pre-tax income fell 10% to $1.1 billion, a 12.3% margin against 13.8%.
**Demand.** Net sales orders were essentially flat at 23,084 homes ($8.4 billion). The cancellation rate rose to 20% from 17%. Management said affordability constraints and cautious consumer sentiment continued to weigh on demand. Backlog at June 30, 2026 was 15,983 homes ($6.2 billion), up 14% in units and 16% in value from a year earlier. For the nine months, orders rose 5% to 66,376 homes ($24.3 billion).
**By region.** The quarter's results varied widely across regions:
- **Northwest:** weakest region. Revenue fell 7%, home sales gross margin fell 440 basis points, and pre-tax income fell to $68.3 million from $116.4 million. Seattle and Salt Lake City led the decline.
- **Southwest:** revenue down 1%, gross margin down 120 basis points.
- **South Central:** revenue up 1%, gross margin down 60 basis points.
- **Southeast:** the only region to raise pre-tax income, to $230.8 million from $224.6 million, with gross margin flat.
- **East:** revenue up 5%, led by Atlanta, Greenville and Myrtle Beach.
- **North:** revenue up 5%, led by Pittsburgh and Southern Virginia, though gross margin fell 180 basis points.
**Inventory and land.** Homes in inventory were 38,000, against 29,600 at September 30, 2025, a seasonal build. Of these, 23,300 were unsold, including 7,600 completed unsold homes (600 completed more than six months earlier). Owned lots fell to 126,600 from 147,000. Lots controlled through purchase contracts were 441,900. The optioned share of the lot position rose to 78% from 75% at fiscal year-end. Impairments in homebuilding were $3.7 million in the quarter, and option write-offs were $17.3 million.
**Other segments.**
- **Rental:** revenues fell to $266.1 million from $380.7 million. The segment closed 601 single-family rental homes (against 1,065) and 339 multi-family units. Pre-tax income fell to $31.0 million from $54.8 million because fewer single-family homes closed and margins were lower. Rental inventory reached $3.1 billion. It included 10,250 multi-family units substantially complete and in lease-up, and 3,580 under construction.
- **Forestar:** revenues rose 4% to $407.0 million on 3,659 lots sold, 3,370 of them to D.R. Horton. Pre-tax income rose 12% to $48.7 million.
- **Financial services:** revenues fell 3% to $220.7 million and pre-tax income fell 14% to $70.3 million. Mortgage revenue fell 5% on a reduced profit margin on loans sold. DHI Mortgage financed 82% of the company's closings.
**Tax.** The effective tax rate was 25.1%, against 23.9% a year earlier.
**Nine-month view.** Revenues fell 4% to $23.7 billion. Pre-tax income fell 18% to $2.9 billion. Net income attributable to D.R. Horton fell 20% to $2.1 billion, and diluted EPS fell 13% to $7.45. Home sales gross margin was 20.4%, against 22.1%. That 170-basis-point decline included a 30-basis-point benefit from a favorable litigation outcome and lower warranty costs. Operating cash flow was $880.8 million, against $949.1 million. Homebuilding generated $1.3 billion, while rental used $324.6 million and financial services used $221.7 million. In October 2025 the company acquired the homebuilding operations of SK Builders, which operates in and around Greenville, South Carolina, for approximately $80 million in cash. The deal brought about 160 homes in inventory, 260 lots, a backlog of 110 homes, and control of about 1,320 additional lots through purchase contracts.
**Balance sheet and capital allocation.** In March 2026 the homebuilding revolving credit facility was enlarged from $2.3 billion to $3.3 billion, with $3.0 billion of the commitments now maturing in 2029 and 2031 and $265 million in October 2027. At June 30, 2026, $500 million was drawn on it at 4.5%; nothing was drawn at fiscal year-end. The DRH Rental facility was extended to March 2030 and had $820 million drawn. The committed mortgage repurchase facility was increased to $1.925 billion in May 2026.
Total notes payable were $7.1 billion. Of that, $2.6 billion was due within 12 months: $1.8 billion of mortgage repurchase borrowings and $600 million of 1.3% homebuilding senior notes maturing in October 2026. Debt to total capital was 23.0% (17.4% net of cash), against 19.8% at September 30, 2025. Homebuilding cash was $1.3 billion, and total liquidity was $6.1 billion.
The company repurchased 4.2 million shares for $615.7 million in the quarter, at an average of $145.59. That brought nine-month buybacks to 14.6 million shares for $2.2 billion. It paid $127.1 million of dividends at $0.45 per share. Shares outstanding were 280.7 million, down 6% year over year. Book value per share was $84.85.
**Litigation.** The Maryland stormwater action was settled in May 2026. D.R. Horton paid a $200,000 civil penalty plus $210,000 toward restoration. Forestar paid a $637,500 penalty, $840,000 toward restoration and $325,000 of attorneys' fees. The Forestar derivative suit remains pending. Pending construction defect claims were about 895, against 875 at fiscal year-end. In the nine months, 205 claims were resolved at a total cost of $65.8 million.
**Guidance (July 21, 2026).** Management lowered its full-year fiscal 2026 revenue and homes-closed guidance and raised its expected tax rate, replacing the ranges it had given on April 21, 2026:
- consolidated revenues of $32.5 billion to $33.0 billion, down from $33.5 billion to $34.5 billion
- 83,800 to 84,300 homes closed, down from 86,000 to 87,500
- an income tax rate of about 25.0%, up from about 24.5%
It reiterated these targets:
- operating cash flow of at least $3.0 billion
- share repurchases of about $2.5 billion (raised in September; see Subsequent events)
- dividend payments of about $500 million
Management expected sales incentives to stay elevated in the fourth quarter, depending on demand and mortgage rates.
## Subsequent events
*Sources: Form 10-Q, accession 0000882184-26-000096 (Note I); Form 8-K furnished July 21, 2026, accession 0000882184-26-000092; Form 8-K filed September 15, 2026, accession 0000882184-26-000108.*
The June 2026 Form 10-Q has no separate subsequent-events note, and it discloses no acquisitions, divestitures or new borrowings after quarter end. The events after June 30, 2026 disclosed in filings are:
- **Dividend (July 2026).** The Board declared a quarterly cash dividend of $0.45 per share, payable August 13, 2026 to stockholders of record on August 6, 2026.
- **Updated full-year guidance (July 21, 2026).** See the guidance paragraph above.
- **New $5.0 billion buyback authorization (September 15, 2026).** The Board authorized repurchases of an additional $5.0 billion of common stock, with no expiration date. About $53 million remained under the prior authorization at that date, down from $1.1 billion at June 30, 2026. The company raised its expected total fiscal 2026 repurchases to at least $3.25 billion, from the roughly $2.5 billion it guided in July.
- **Upcoming maturity and results.** The $600 million of 1.3% homebuilding senior notes were scheduled to mature in October 2026. The company scheduled its fourth-quarter and full-year fiscal 2026 results for October 29, 2026.